On November 10, 2020 Nippon Kayaku reported that (Press release, Nippon Kayaku, NOV 10, 2020, View Source [SID1234571046])
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1. Consolidated Business Results for the Second Quarter of the Fiscal Year Ending March 31, 2021 (April 1, 2020–September 30, 2020)
(1) Consolidated Operating Results
(2) Consolidated Financial Position
2. Status of Dividends
3. Consolidated Business Results Forecasts for the Fiscal Year Ending March 31, 2021 (April 1, 2020– March 31, 2021) (1) Significant changes in subsidiaries during the first half (changes in designated subsidiaries that result in changes in scope of consolidation): None
(2) Adoption of special accounting methods for presenting the quarterly consolidated financial statements: None
(3) Changes to accounting policies and estimates and restatements
[1] Changes to accounting policies associated with revision of accounting standards or similar items: Nippon Kayaku
[2] Changes other than
[1]: None
[3] Changes to accounting estimates: None
[4] Restatements: None
(4) Number of shares issued (common stock)
[1] Number of shares issued at end of the fiscal period (including treasury stock) As of September 30, 2020: 177,503,570 shares As of March 31, 2020: 177,503,570 shares
[2] Number of treasury stock at end of the fiscal period As of September 30, 2020: 6,710,248 shares As of March 31, 2020: 6,709,685 shares
[3] Average number of shares during the fiscal period (cumulative) First half of the fiscal year ending March 31, 2021: 170,793,635 shares First half of the fiscal year ended March 31, 2020: 173,144,521 shares * Quarterly summary financial statements are not subject to audit by a certified public accountant or audit firm. * Analysis related to appropriate use of the business forecasts, and other notes The information in this report constitutes forward-looking statements regarding future events and performance.
This information is based on the beliefs and assumptions of management in light of information currently available to it at the time of announcement and subject to a number of uncertainties that may affect future results. Actual business results may differ substantially from the forecasts herein due to various factors. For matters pertaining to business forecasts, please refer to "
(3) Analysis of Forward-looking Statements, Including Consolidated Business Results Forecasts" on page 3 of the Supplementary Information. (How to obtain the materials for the briefing on quarterly financial results) We have scheduled a teleconference for securities analysts and institutional investors on Wednesday, November 11, 2020. The materials for the briefing will be posted on the corporate website.
1. Qualitative Information Concerning Results for the Second Quarter
(1) Analysis of Operating Results During the first half of this consolidated fiscal year (April 1 to September 30, 2020), a deceleration in the global economy occurred from restrictions on economic activity to prevent the spread of the novel coronavirus. The increase in people infected with the virus led to restrictions on overseas travel, stay-at-home restrictions, and store closures in the U.S. and Europe from March onward, causing a slump in economic activity and a resulting rapid deterioration in the economy. However, signs of a gradual rebound were seen in consumer spending and corporate revenues. In China, the economy continued to recover as economic activity resumed. The Japanese economy saw improvement in consumer spending and corporate revenues, but the unpredictability of the timing for bringing the pandemic under control caused uncertainty over the future to persist. Amid these conditions, the Nippon Kayaku Group worked to implement the key themes and resolve the midand long-term key issues outlined in "KAYAKU Next Stage," the mid-term business plan launched in the fiscal year ended March 31, 2020, while also making active use of flextime, telecommuting, and other systems to accommodate the restrictions on corporate activity. We took these steps to ensure the safety of employees working in the Company and at Group companies while also implementing a new lifestyle and promote efficient workstyles aimed at minimizing the impact on our business.
As a result, net sales for the first half of this consolidated fiscal year totaled 80,518 million yen, a decrease of 5,089 million yen (5.9%) year-on-year. Sales in the functional chemicals and the pharmaceuticals businesses outperformed the first half of the previous fiscal year, while sales in the safety systems business declined. Operating income totaled 6,976 million yen, a decrease of 2,069 million yen (22.9%) year-on-year. Ordinary income totaled 7,341 million yen, a decrease of 1,807 million yen (19.8%) year-on-year. Profit attributable to owners of parent was 4,883 million yen, a decrease of 1,454 million yen (22.9%) year-on-year. Performance by business segment is as described below. [Functional Chemicals Business] Sales stood at 34,850 million yen, an increase of 709 million yen (2.1%) year-on-year. The functional materials business outperformed the first half of the previous fiscal year, despite a decline in vehicle-related sales.
This resulted from strong sales of epoxy resins used in semiconductor encapsulation and circuit boards due to increased demand for IT equipment such as high-speed (5G) communications devices and PCs. The color materials business underperformed the same period of the previous fiscal year due to slow sales of colorants for inkjet printers in industrial applications and dyes for textiles due to the impact from the spread of the novel coronavirus. Sales of colorants for inkjet printers for consumer use were firm due to telecommuting. The catalyst business outperformed the same period of the previous fiscal year, both in Japan and overseas. The Polatechno Group saw slow sales of dye-type polarizing films and other optical materials and components due to the impact from the spread of the novel coronavirus, underperforming the same period of the previous fiscal year. Segment profit rose to 3,647 million yen, an increase of 143 million yen (4.1%) year-on-year.
This resulted from growth in sales in the catalyst business, which more than covered the decline in sales of the color materials business and the Polatechno Group. [Pharmaceuticals Business] Sales stood at 25,134 million yen, an increase of 1,908 million yen (8.2%) year-on-year. Pharmaceuticals in Japan were impacted by two drug price revisions since the first half of last fiscal year. Nevertheless, the segment outperformed the first half of the previous fiscal year as growth in sales contributed to performance due to the switch to biosimilars and generic drugs, and growth in the antibody biosimilars, TRASTUZUMAB BS and INFLIXIMAB BS, in particular.
The new drug, APREPITANT capsules, also contributed to sales. Although sales of contract production outperformed the same period of the previous fiscal year, exports and sales of active pharmaceutical ingredients underperformed the same period of the previous fiscal year due to the impact from the spread of the novel coronavirus. Segment profit was totaled 4,334 million yen, an increase of 684 million yen (18.8%) year-on-year. This resulted from a decrease in sales-related expenses due to decreased sales activities as the novel coronavirus spread and growth in sales of antibody biosimilars. [Safety Systems Business] Sales stood at 16,989 million yen, a decrease of 7,082 million yen (29.4%) year-on-year. Sales of airbag inflators, micro gas generators for seatbelt pretensioners, and squibs underperformed the same period of the previous fiscal year owing to the slump in the automotive market in all regions outside of Chinaincluding Japan, under the impact from the spread of the novel coronavirus. A decline in sales due to the slump in the automotive market led to segment profit of 1,366 million yen, a decrease of 2,692 million yen (66.3%) from the same period of the previous fiscal year. [Other] Sales stood at 3,544 million yen, a decrease of 625 million yen (15.0%) year-on-year.
The agrochemicals business underperformed the same period of the previous fiscal year in both domestic sales and exports. Sales in real estate and other business increased compared to the first half of the previous fiscal year. Segment profit totaled 876 million yen, a decrease of 137 million yen (13.6%) year-on-year. Growth in real estate and other business sales did not cover the decline in sales in the agrochemicals business.
(2) Analysis of Financial Position
[1] Status of Assets, Liabilities, and Net Assets Total assets were 290,607 million yen, an increase of 12,111 million yen from the end of the previous consolidated fiscal year. The main increases were in securities, an increase of 10,389 million yen; investment securities, an increase of 2,792 million yen; and goodwill, an increase of 2,344 million yen. The main decreases were in cash and deposits, a decrease of 5,401 million yen; and merchandise and finished goods, a decrease of 2,935 million yen. Liabilities were 75,121 million yen, an increase of 6,644 million yen compared to the end of the previous consolidated fiscal year.
The main increase was in short-term loans payable, an increase of 9,462 million yen. The main decrease was in income taxes payable, a decrease of 2,018 million yen. Net assets were 215,485 million yen, an increase of 5,466 million yen compared to the end of the previous consolidated fiscal year. The main increases were in retained earnings, an increase of 2,321 million yen (a 2,561 million yen decrease from dividends paid and a 4,883 million yen increase in profit attributable to owners of parent); and unrealized holding gains on other securities, an increase of 1,936 million yen.
[2] Cash Flows Status Net cash provided by operating activities amounted to 11,879 million yen (versus a cash inflow of 15,746 million yen during the same period of the previous fiscal year). The positive cash flow was primarily generated from profit before income taxes of 7,108 million yen, depreciation and amortization of 6,019 million yen, and a decrease in inventories of 2,932 million yen. The above factors more than compensated for income tax paid of 3,172 million yen and a decrease in notes and accounts payable-trade of 1,187 million yen. Net cash used in investing activities totaled 12,762 million yen (versus a cash outflow of 10,450 million yen during the same period of the previous fiscal year).
The net outflow was mainly due to expenditures of 6,228 million yen for business acquisition and 6,001 million yen for the purchase of property, plant, and equipment. Net cash inflow in financing activities amounted to 5,677 million yen (versus a cash outflow of 5,167 million yen during the same period of the previous fiscal year). This mainly resulted from a net increase in short-term loans payable of 10,512 million yen, despite the cash outflow from dividends paid of 2,556 million yen and expenditures for repayment of long-term loans of 2,222 million yen. Reflecting the above cash flow performance, the balance of cash and cash equivalents at the end of the first half was 51,739 million yen (versus 51,297 million yen during the same period of the previous fiscal year), an increase of 5,076 million yen from the end of the previous fiscal year.
(3) Analysis of Forward-looking Statements, Including Consolidated Business Results Forecasts The future business environment surrounding the Nippon Kayaku Group still bears the risk of an economic slowdown despite signs of a recovery in the global economy, due to uncertainty over an economic downswing under the impact from the spread of the novel coronavirus and U.S.-China trade friction, among other factors.
The Japanese economy is still feeling the impact from the spread of the novel coronavirus and is being supported by monetary easing and the benefits from economic measures implemented by the Japanese government, but is expected to gradually improve from the second half of 2020. Under these conditions, the Nippon Kayaku Group will work to ascertain and respond globally to the changing conditions. We will endeavor to keep our employees safe, while also continuing efforts to minimize the significant impact of this infectious disease on the business results of the Nippon Kayaku Group. The Nippon Kayaku Group also aims to respond flexibly to changes in the business environment and pursue optimal use of operating capital to increase the shareholder value, as well as expand existing businesses in global growth markets, accelerate the development of new businesses and new products, and enhance profits. We examined recent economic trends and progress in operating performance in the first half of this consolidated fiscal year, and are disclosing the full-year consolidated business forecasts for the fiscal year ending March 2021 that were not disclosed previously. See the Consolidated Business Results Forecasts for the Fiscal Year Ending March 31, 2021 that was published today for further details.
2. Quarterly Consolidated Financial Statements and Notes to Quarterly Consolidated Financial Statements
(2) Consolidated Statements of Income & Consolidated Statements of Comprehensive Income
(3) Consolidated Statements of Cash Flows
(4) Notes to Quarterly Consolidated Financial Statements (Notes Regarding Assumptions for the Going Concern)I. First half of the fiscal year ended March 31, 2020 (April 1, 2019–September 30, 2019)
1. Information on sales and profit (loss) by reportable segmentNote 1: "Other" indicates a business segment that is not included in the reportable segments, including the agrochemicals business and real estate business.
Note 2: The 3,180 million yen downward adjustment to segment profit reflects a negative 3,200 million yen in corporate expense not allocable to the reportable segments and 19 million yen in eliminations for intersegment transactions. The corporate expense is mainly a general and administrative expense that is not attributed to the reportable segments.
Note 3: Segment profit has been adjusted to correspond with the total operating income as shown in the consolidated statements of income.
2. Changes in reportable segments No items to report
3. Information concerning impairment losses on non-current assets, goodwill, etc. by reportable segment No items to report II. First half of the fiscal year ending March 31, 2021 (April 1, 2020–September 30, 2020)
1. Information on sales and profit (loss) by reportable segment2. Changes in reportable segments (Revision of the method for allocation of corporate expenses) From the first quarter of the consolidated fiscal year under review, the Company’s general and administrative expenses which has previously been allocated among the reportable segments, have been reclassified as corporate expenses. This was done to reflect the actual state of responsibility for management activities for the entire Group and to more accurately ascertain the performance of each reportable segment. This has resulted in increases in segment profit in the first half of the consolidated fiscal year under review of 1,541 million yen in the functional chemicals business, 905 million yen in the pharmaceuticals business, 907 million yen in the safety systems business, and 158 million yen in the other businesses, and a decrease of 3,512 million yen in adjustments to segment profit compared calculations under the previous method. The segment information provided for the first half of the previous fiscal year has been recalculated to show segment profit and loss after the revision.
3. Information concerning impairment losses on non-current assets, goodwill, etc. by reportable segment (Material change in the amount of goodwill) The acquisition of a business from Henkel AG & Co. KGaA in the functional chemicals business resulted in goodwill, increasing total goodwill by 2,602 million yen. (Additional Information) (Accounting estimates of the impact from the spread of the novel coronavirus) There are no significant changes to assumptions, including assumptions for the timing of bringing the novel coronavirus under control, noted in "Additional Information, Accounting estimates of the impact from the spread of the novel coronavirus" appended to the securities report for the previous consolidated fiscal year. (Significant Subsequent Events) (Company split from consolidated subsidiary (simple, abbreviated absorption-type split)) At its Board of Directors meeting held on March 31, 2020, Nippon Kayaku passed the following resolution for the Company to take over the business of manufacturing and selling polarizing films for LCDs, polarizing films for projectors, and other precision-processed products (hereafter, "the business") from its consolidated subsidiary, POLATECHNO CO., LTD. (hereafter, "Polatechno"), via an absorption-type split (hereafter, "the absorption-type split"), effective on October 1, 2020. Nippon Kayaku took over this business as scheduled on October 1, 2020.
1. Summary of transaction (1) Companies involved in the business combination and names and descriptions of the business The business of Polatechno, a wholly-owned subsidiary, in manufacturing and selling polarizing films for LCDs, polarizing films for projectors, and other precision-processed products
(2) Date of business combination Date of Board of Directors resolution approving the absorption-type split agreement (Nippon Kayaku): March 31, 2020 Date of Board of Directors resolution approving the absorption-type split agreement (Polatechno): March 27, 2020 Conclusion date of absorption-type split agreement: May 22, 2020 Date on which the absorption-type split agreement became effective: October 1, 2020 Note: This absorption-type merger constitutes an abbreviated split under Article 784, Paragraph 1 of the Companies Act for Polatechno, the company splitting off the business; and as a simple split under Article 796, Paragraph 2 of the Companies Act for Nippon Kayaku, the succeeding company. Both companies therefore executed the absorption-type split agreement without obtaining approval from the Shareholders Meeting.
(3) Legal form of business combination The form is an absorption-type split (simple absorption-type split) in which Polatechno is the splitting company and Nippon Kayaku is the succeeding company.
(4) Name of company after business combination There are no changes to the names, location of headquarters, capital, and fiscal year-end of either company as a result of this absorption-type split. However, the description of the main business of the split company after the absorption-type split was changed to the land leasing business. The accompanying amendments to the Articles of Incorporation for the split company were approved at the Annual Shareholders Meeting held on June 24, 2020.
(5) Other information concerning the summary of the transaction Incorporating the business into the Company as a business division will enable more effective use and optimal allocation of the management resources possessed by both companies, such as human resources, sales channels, production locations, and intellectual property. The Company is aiming to improve the efficiency of and expand the business by integrating the R&D structures of both companies to improve the efficiency and speed of R&D, strengthen governance, and achieve other benefits.
2. Summary of accounting standards implemented The Company accounted for the combination as a transaction under common control in accordance with ASBJ Statement No. 21, Accounting Standard for Business Combinations (January 16, 2019) and ASBJ Guidance No. 10, Implementation Guidance on Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (January 16, 2019). This absorption-type split was eliminated as an internal company transaction in the consolidated financial statements and it therefore had no impact on profit and loss.